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Daily Market Outlook

Tue, Jan 13 2009, 00:35 GMT
by AceTrader Team

AceTrader

Market Review - 12/01/2009 19:16 GMT

Euro falls to one-month low against dollar as S&P's says may cut Spain's AAA rating


The single currency resumed its recent decline and fell to a one-month low against the dollar on Monday after ratings agency Standard & Poor's placed a warning on Spain and said it may cut the country's 'AAA' sovereign credit rating. Speculation that the European Central Bank may cut interest rates and the drop of over 7% in oil prices also put pressure on the euro.  
  
Standard & Poor's announced that it has put its 'AAA' long-term foreign and local currency sovereign credit ratings on Spain on CreditWatch with negative implications and they may be downgrading Spain's triple-A rating as S&P's anticipated significant challenges facing the Spanish economy, which has already been hit by both the global credit crisis and the collapse of the domestic housing boom. Spain became the third eurozone country (after Ireland and Greece) to be warned by S&P's that its credit rating is under threat.  
  
Investors are expecting the European Central Bank (ECB) to cut key interest rates by 50 basis points to 2.0 percent this coming Thursday and according to interest rate futures on Monday, more people are betting for a 75 basis points cut. The single currency dropped to a session low of 1.3289 before recovering in afternoon New York trading on profit-taking.   
  
The decline in oil prices also helped lift the greenback especially against the European currencies, U.S. crude oil slipped to $37.48 a barrel as Russia and Ukraine signed a deal to help secure the resumption of Russian oil supplies to Europe. Weakness in oil prices dragged gold prices down as well and spot gold tumbled to $816.20 in late U.S. trading.   
  
Against the Japanese yen, despite trading narrowly in Asia as Tokyo market was closed for a Japanese holiday, the greenback tumbled to a 3-week low of 88.89 on active selling in eur/jpy partly due to rate cut expectations and news on S&P's rating warnings on Spain. The British pound traded sharply lower and was down over 2 percent versus dollar, hitting a session low of 1.4811 on the back of cross-selling vs euro and yen.  
  
A number of economic data will be released on Tuesday, including Japan's trade balance & current account; U.K. BRC retail sales, trade balance & house prices; German WPI plus Canada and U.S. trade balance.

Published on  Tue, Jan 13 2009, 00:42 GMT